Chinese internet and tech giant Tencent will not venture into VR hardware as a tougher regulatory crackdown and a challenging economic outlook force the company to reduce its metaverse bets. According to Reuters, Tencent’s metaverse plans “no longer quite fit in” the company’s strategy.

Tencent Cites Tougher Economic Outlook and Regulatory Concerns

Tencent Holdings scrapped plans to foray into virtual reality (VR) hardware, becoming the latest tech company to reduce its bets on the metaverse. The decision comes as part of the Chinese internet giant’s efforts to slash costs and headcount at its metaverse team amid a deteriorating economic outlook.

The move marks a sharp U-turn for Tencent, which hired almost 300 employees last year to venture into VR software and hardware at its “extended reality” (XR) business. The company planned to build a cloud gaming hand-held controller. Still, challenges in reaching quick profitability and the need for hefty investments to build a competitive product forced the company to abandon the move, the Reuters report stated.

According to one of the sources, the XR project was not expected to achieve profitability until 2027. A separate Reuters source said Tencent’s metaverse unit did not have a strong lineup of promising games and non-gaming apps.

“Under the company’s new strategy as a whole, it no longer quite fit in.”

– Reuters source said.

Earlier this year, the internet giant also abandoned plans to buy a gaming phone manufacturer Black Shark, which the company believed had a robust supply chain and inventory to boost its VR hardware efforts and add 1,000 people to the team. But Tencent eventually decided not to pursue the deal due to its shift in strategy and growing regulatory scrutiny, adds the report.

Tech Giants Forced to Reduce Costs

Tencent launched its XR unit in June last year to tackle the burgeoning metaverse market and growing interest in the concept of virtual worlds. As part of this strategy, the Shenzen, China-based tech company teamed up with Web3 firm Strange Universe Technology to create and host virtual enterprise experiences.

But last year was one of the most challenging periods for the 25-year-old company as mounting regulatory concerns and headwinds from China’s stringent zero-Covid policy battered its revenue.

This forced Tencent to shift strategically and scale back on its big metaverse plans. The challenging economic outlook also weighed on Tencent’s US rivals, including Alphabet, Microsoft, and Meta – all of which adopted cost-cutting measures in recent months. Recent reports revealed that Microsoft terminated its metaverse division to focus on AI.

This article originally appeared on The Tokenist

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.